Rial Devaluation Triggering Inflation

BMI View: The Central Bank of Iran undertook a de facto devaluation of the rial in the official market on July 6. The value of the unit will likely drop in unregulated market transactions as a result, while food prices are likely to spike, ensuring that consumer price inflation remains elevated in 2013.

In a sign of ongoing economic stress, the Central Bank of Iran (CBI) listed the price of the rial to IRR24,779/US$ on its website on July 6, compared to the previous official rate of IRR12,260/US$. The central bank did not issue any statement explaining the change. That said, Iranian Mehr and ISNA news agencies said that the rate would replace the previous official rate.

Before the move, Iran's used a multiple-tier foreign exchange system. The official IRR12,260/IRR rate was used to purchase strategic imports, a foreign exchange centre used a flexible rate near the IRR25,000/US$ level for the imports of capital goods and industrial materials, while the currency traded freely in the unregulated market. That said, the CBI has been gradually allowing fewer importers to buy dollars at the IRR12,260/US$ rate over the past quarters. For instance, the bank excluded importers of several staple goods - including meat, chicken, cooking oil, sugar and rice - and medicines from benefitting from the subsidised official rate on April 24. The bank was providing dollar at the IRR12,260/US$ rate only to importers of wheat, barley, corn and soya before July 6.

Devaluation Unfolding
Iran - IRR/US$ Exchange Rate, Official & Street Market

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This article is tagged to:
Sector: Country Risk
Geography: Iran

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